GST on Food Items and Restaurants

[Law Legends]

When the GST was first launched in July 2017, restaurants could fall into three different rate slabs. If the restaurant did not have air conditioning, the GST charged was 12%. For a restaurant with AC or a liquor license, 18% GST is applicable. For restaurants within five-star hotels, the GST rate was set at 28%, and at that time, all Indian restaurants in India could take advantage of the input tax credit. 

This implies that when you paid GST while buying supplies for your restaurant, you could subtract that amount from your tax bill. That helped reduce costs for many restaurants.

Introduction

GST is a consumption-based tax levied on the value added at each stage of production and distribution. In the case of food and restaurants, the GST is levied based on the type of restaurant and the services provided. The GST rates for restaurants serving food and beverages are 5% for non-air-conditioned restaurants and 18% for air-conditioned restaurants. Additionally, the GST rate is 18% for restaurants serving alcoholic beverages. Furthermore, outdoor catering services are also subject to a GST rate of 5%.

GST on Food Items

The following are the key GST rates applicable to some common food items*:

• Nil GST on fresh and chilled vegetables including potatoes, onions, garlic, leek etc.
• NIL GST on non-container packed dried leguminous vegetables(shelled) whether skinned/split or not
• Nil GST on fresh grapes, fresh/dried coconut, fresh/dried bananas/plantain, fresh apples, fresh pears, etc.
• Nil GST on meat (not in container whether fresh or chilled)
• Nil GST on birds’ eggs in shell (fresh/cooked/preserved)
• Nil GST on unsweetened milk (pasteurised/unpasteurised), cream, etc.  
• Nil GST on container packed vegetables (uncooked/steamed/boiled)
• Nil GST on vegetables preserved using brine/other means unsuitable for immediate human consumption
• 5% GST on meat packed in container bearing registered trademark/brand name
• 5% GST on birds’ eggs not in shell/egg yolks boiled or cooked by steaming
• 5% GST on dried leguminous vegetables packed in container bearing registered brand name (skinned/split or not)
• 5% GST on ginger (excluding fresh ginger), turmeric (excluding fresh turmeric), thyme, curry leaves, bay leaves, etc.
• 5% GST on food such as meal/powder of dried leguminous vegetables
• 12% GST on vegetables, fruits, nuts and edible plant parts preserved using sugar
• 12% GST on vegetables, fruits, nuts and edible plant parts that are preserved/prepared using vinegar/acetic acid.
• 18% GST on food preparations such as those prepared using flour, malt extract, etc. containing cocoa less than 40% of total weight.
• 18% GST on chocolate and other cocoa products  

The list is indicative and rates are subject to periodic change. For detailed list of GST rates on various food products, use Law Legends App.

Impact of GST on food

GST on food is nothing but a simplification of the bill; it replaced various taxes and Cess such as VAT, Krishi Kalyan Cess, Service, etc. After the implementation of GST on food, a decrease in the effective tax on restaurant bills are also evident to customers. But the decrease in the cost of eating out for customers was also observed to be marginal at the best.

No change has been witnessed in the service charge as it is still payable by the customer in addition to GST on food in the restaurants.

For restaurant owners, the availability of Input tax credit after GST implementation was expected to make an increase in the working capital availability for restaurants.

Under the provision of GST rules, ITC benefit is available only to those charging 18% of GST, while restaurants or eateries are charging only 5% GST on food services does not receive ITC benefits.